How to negotiate with suppliers better
Whether you're running the latest trendy ‘café with no name', or a full-blown manufacturing operation, you'll have people in other businesses who supply you with goods or services. To ensure you set up your business for profit, you want to achieve the best price for what you buy. This is where your negotiation skills come in, so here are six tips that may help you negotiate better.
Remember, there are generally always other suppliers you can use. When researching and reviewing alternative suppliers and considering how to get a better deal, ask yourself some questions:
Looking further afield (and potentially online) may give you an idea of the room you have when negotiating with suppliers.
Be clear in your mind about your business objectives. Know what prices you plan to offer to remain competitive, and how much profit you need to achieve to match your business plan projections.
For help with drafting a business plan read our How to write a business plan article.
Don’t feel the need to fill a pause in your conversation about pricing. Give your supplier the opportunity to ‘show their hand’ before you show yours.
When negotiating, you want the other person to put the first number on the table. This is called an ‘anchor’ and you can generally negotiate down from this point.
See if they will share how they currently price their product or service, to establish this anchor.
Think about all the ways you can ‘give something back' to your supplier to reward them for giving you a good price.
For example, you could praise their products on social media and talk about the good relationship you have with them. Or you could agree to feature their brand prominently in your store, on your website, or in your promotions.
Tell your supplier about your plans. You might be surprised how much they value the positive and shareable word of mouth you generate, and therefore may factor this into a better price for you.
Settling on mutually agreeable payment terms is a very important gesture as it builds trust in the relationship and demonstrates that you’re not a time waster. If you want a long-term partnership with this supplier, building rapport is a good investment.
Just like you, most suppliers want to work with people who they can trust and people who pay on time. Plus, this approach also puts all your negotiation effort on paper, as you’ll now have a baseline with them for future pricing.
You can even ask your supplier whether they give a discount for early or immediate payment. If you take this approach, it's worth making sure it supports your cash flow objectives.
If all else fails, the price you’ve been offered is too high and your supplier will not budge, then walk away and invest your energy in finding a better match for your business. At least you’ll have gained some valuable experience in the art of negotiating price.
To sum up
Successful businesses rely on good business relationships – so treat negotiations as a partnership-building exercise rather than a haggle where each side is seeking to gain every cent of financial advantage. Always remember that both parties have to benefit from the arrangement you agree on and it's easier to work with good suppliers than to be constantly searching for new ones.
This information does not take into account your personal circumstances and is general. It is an overview only and should not be considered a comprehensive statement on any matter or relied upon. Consider obtaining personalised advice from a professional financial adviser and your accountant before making any financial decisions in relation to the matters discussed in this article, including when considering tax and finance options for your business. Westpac does not endorse any of the external providers referred to in this article.